Raymond Woollen Mills Ltd. & ANR. Vs. Director General
(Invest.&Regis.) & ANR.  INSC 944 (15 May 2008)
IN THE SUPREME COURT OF INDIA
CIVIL APPEALLTE JURISDICTION CIVIL APPEAL NO.1120 OF 2001 Raymond Woollen Mills
Ltd. .. Appellants (Now known as M/s Raymond Ltd.) and Another Versus Director
General (Investigation & Registration), & Another ..
Dalveer Bhandari, J.
1. This appeal is directed against
the judgment/order dated 12.10.2000 passed by the Monopolies and Restrictive
Trade 2 Practices Commission (hereinafter referred to as "the
Commission") in R.T.P. Enquiry No. 204 of 1988.
2. Brief facts which are necessary
to dispose of this appeal are as under:
A Notice of Enquiry under section
10 (a)(iv) and section 37 of the Monopolies and
Restrictive Trade Practices Act, 1969 (hereinafter referred to as the `MRTP
Act') was issued to the appellants wherein it was alleged that the appellants
had indulged in restrictive trade practice within the meaning of section
2(o)(ii) and section 33(1)(b) and of the MRTP Act.
3. In order to comprehend the
controversy involved in this case properly, sections 2(o)(ii) and 33 (1)(b) of
the MRTP Act are reproduced as under:
"2. In this Act, unless the
context otherwise requires - xxx xxx xxx xxx xxx xxx 3 (o) "restrictive
trade practice" means a trade practice which has, or may have, the effect
of preventing, distorting or restricting competition in any manner and in
particular,- (i) .................
(ii) which tends to bring about
manipulation of prices, or conditions of delivery or to affect the flow of
supplies in the market relating to goods or services in such manner as to
impose on the consumers unjustified cost or restrictions."
33. Registrable agreements
relating to restrictive trade practices.- (1) Every agreement falling within
one or more of the following categories shall be deemed, for the purposes of
this Act, to be an agreement relating to restrictive trade practices and shall
be subject to registration in accordance with the provisions of this Chapter,
namely:- (a) .............
(b) any agreement requiring a
purchaser of goods, as a condition of such purchase to purchase some other
xxx xxx xxx"
4. The appellants herein denied
the allegations made in the Notice of Enquiry and it was categorically stated
that it neither manufactured nor sold any garments and such allegations of 4
restrictive trade practice made against it was without any foundation.
5. The Commission directed
respondent no. 1 [Director General (I&R)] to furnish a copy of the
Preliminary Investigation Report on the basis of which the Notice of Enquiry
was issued to the appellants.
6. Respondent no. 1 in evidence
produced one Viren Shah, partner of M/s Roop Milan, Bombay and his
examination-in- chief and the cross-examination was recorded. In his evidence,
he referred the following documents:
i) Letter dated 23.7.87 ii) Letter
dated 15.1.88 iii) Letter dated 12.9.87 iv) Refund Memo dated 28.9.87.
7. The appellants filed the
affidavit of evidence of Pradeep H. Paranandan, Sales Manager of appellant no.
2. The said 5 witness was also cross-examined on behalf of the Director General
8. The complainant/informant M/s
Roop Milan complained that it was appointed as a retail dealer on 19.4.1982 and
that it was getting regular supplies of blazers, suits, safaris and trousers
till December 1986 when the appellants stipulated that blazers, suits and
safaris would be supplied only if substantial orders were placed for readymade
trousers. From the information furnished by the complainant/informant, it
transpired that out of 139 items supplied by the appellants, 119 were trousers
and the balance 20 were blazers and suits.
9. The complainant in his
statement further stated that his dealings with the appellants came to an end
in July 1987 when appellant no. 2 compelled him to place an order for trousers
along with order for blazers, safaris and suits.
10. Pradeep H. Hiranandani
appeared as a witness on behalf of appellant no. 2 herein. He stated that the
readymade 6 garments including trousers manufactured and marketed by appellant
no. 2 enjoyed good demand in the market and the supply of garments was made to
the dealers on the basis of order placed by them and subject to availability of
stock. It was also stated by him that the manufacture of readymade garments was
reserved for the small scale sector and the appellants had a negligible market
11. The Commission, after
evaluating the evidence, observed that 133 trousers were supplied to the
complainant/informant in the year 1985-86. However, no record of the order
placed with the appellants could be produced, but the complainant/informant
stated that he was compelled by the appellants to place substantial order for
trousers in order to get supplies of blazers, safaris and suits. The invoices
which were produced as part of evidence revealed the quantity of garments
supplied by the appellants and undoubtedly, the quantity of trousers was
substantial. It was further observed that there was pressure on the dealers to
accept higher 7 quantity of trousers than required and when he showed his
unwillingness to accept the large quantity of trousers, his dealership was
terminated and the security deposit was refunded to him. The Commission arrived
at the conclusion that the allegation of tie-up of sales of trousers with other
garments supplied by appellant no. 2 appeared to have been fully established.
12. On the basis of the
aforementioned complaint, the Commission arrived at the conclusion that the
appellants had indulged in restrictive trade practice within the meaning of
sections 2(o)(ii) and 33(1)(b) of the MRTP Act.
13. The Commission further
observed that the termination of the dealership or appellants' refusal to deal
with a well established retailer was bound to have an adverse effect and impact
on competition in so far as it would reduce the number of retail dealers in the
local market and thus would have the effect of restricting and lessening of the
competition in the sale and supply of readymade garments and, therefore, would
also 8 be prejudicial to public interest. It was further observed that by
restricting and reducing the supply of ready to wear garments would also
attract the provisions of section 2(o)(ii) of the MRTP Act.
14. The Commission directed the
appellants to cease the aforementioned restrictive trade practice forthwith and
furnish an undertaking that they shall not repeat or indulge in same or similar
trade practices in future. The Commission further directed the appellants to
file an affidavit of compliance within six weeks of the pronouncement of the
15. The appellants, aggrieved by
the said order of the Commission, preferred this appeal. The appellants
submitted that the complaint filed by the retail dealer cannot be dealt with
under section 10(a)(i) of the MRTP Act since a complaint thereunder could not
be entertained from a retail dealer who was not a consumer.
16. Section 10(a) (i) & (iv)
of the MRTP Act reads as under:
9 "10. Inquiry into
monopolistic or restrictive trade practices by Commission.- The Commission may
enquire into - (a) any restrictive trade practice -
receiving a complaint of facts which constitute such practice from any trade
association or from any consumer or a registered consumers' association, whether
such consumer is a member of that consumers' association or not or
own knowledge or information."
17. It was submitted on behalf of
the appellants that a complaint under the said provisions could only be filed
by any trade association, or from any consumer or a registered consumers'
association, the said complaint was treated as "information" and
dealt with by the Commission under section 10(a)(iv) "upon its own
knowledge or information" and a suo motu enquiry was initiated in respect
of the aforesaid allegation of "tie-up" of sales.
18. According to the appellants,
the allegation of "tie up" of sales is to be considered in the light
of the above provisions of the MRTP Act, before any order directing that
"such practice shall be discontinued and shall not be repeated," can
be passed. Such an order is also referred to as a "cease and desist
order". For passing such an order under section 37 of the MRTP Act, the
followings have to be established:
(i) That the evidence clearly
establishes that a practice of "tie up" of sales of
"trousers" as a condition of sales and supply of "other
garments" like blazers, coats, safaris, suits was insisted upon.
(ii) That the aforesaid trade
practice, in fact, had the effect of restricting or distorting competition
within the meaning of section 2(o) of the MRTP Act.
(iii) That such competition is
affected to a material degree in the relevant trade and industry.
According to the appellants, It is
only when the above aspects have been established that an order of "cease
and desist" can be passed under section 37 of the MRTP Act.
19. According to the appellants,
on the basis of the record, none of the above conditions is satisfied in the
20. The evidence of the sole
witness produced by the respondent, being Viren Shah, partner of M/s Roop
Milan, the complainant retail dealer, would show that even the allegation of
`tie up" of sales of "trousers" as a condition for sale of
"other garments" like blazers, coats, safaris, suits has not been
established. On the contrary, the evidence of the said witness establishes that
there was no "tie up", as alleged. In fact, the evidence shows that
all readymade garments manufactured by appellant no. 2 were in short supply
since it could not expand its manufacturing capacity due to licensing controls.
When all items are in demand and are in short supply, there cannot be any
question of "tie up" of sales, which is resorted to for the purpose
of selling an unwanted item along with an item having high demand.
21. The appellants submitted that
the sole witness produced by respondent no. 1 who had the carriage of
proceedings in a suo motu enquiry under section 10(a)(iv), it is clear that
trousers were supplied as ordered. The supply of trousers was not tied-up with
the supply of "other garments" like blazers, suits etc. As such,
there is no justification for any finding of "tie-up" of sales.
22. The appellants referred to the
evidence produced by P. H.
Hiranandani, Sales Manager. It was
stated as under:
"It may be clarified that the
manufacture of readymade garments is reserved for the small scale sector in
India and accordingly the second respondent is not in a position to meet the
market demand for its readymade garments including trousers. All the readymade
garments including the trousers manufactured and marketed by the second
respondent enjoyed a good demand in the market.
Dealers placed order and supplies
of goods are made by the second respondent to the dealers depending upon the
orders subject to availability of stocks. In the circumstances, the question of
any alleged tie-up sale of trousers with other garments like blazers, coats,
safaris, cannot and does not arise."
23. The evidence of P. H.
Hiranandani reveals that all garments including trousers were in short supply
and had great demand. Therefore, the allegation that the supply of trousers had
been tied up with any other garment for sale is without any basis.
24. The appellants also submitted
that the allegation of "tie up" of sales is not established, in any
event, it is submitted that section 2(o) of the MRTP Act relating to the
existence of restrictive trade practice can only be invoked when as a result of
the alleged practice, competition is in fact restricted or affected. In the
absence of any such proof of competition having been restricted, no allegation
of restrictive trade practice can be established.
25. In support of their
submissions, the appellants have placed reliance on the judgment of this court
in Tata Engineering and Locomotive Company Ltd., Bombay v.
Registrar of the Restrictive Trade
Agreement, New Delhi (1977) 2 SCC 55. In this case, the scope of restrictive
trade 14 practice, as defined under section 2(o) of the MRTP Act, has been
considered by this court. The practice of imposing territorial restriction and
exclusive dealings in the agreements with dealers were considered in the
context of section 2(o) of the MRTP Act. It was alleged that the restriction
not to deal outside the prescribed territory and not to deal with competing
products was a restriction which affected and restricted competition within the
meaning of section 2(o) of the MRTP Act. This court, while dealing with these allegations
applied the "rule of reason" while dealing with the scope of section
2(o) of the MRTP Act and not the doctrine that any restriction as to area will
"per se" be a "Restrictive Trade Practice". The relevant
portion of para 29 reads as under:
"Every trade agreement
restrains or binds persons or places or prices. The question is whether the
restraint is such as regulates and thereby promotes competition or whether it
is such as may suppress or even destroy competition. To determine this question
three matters are to be considered. First, what facts are peculiar to the
business to which the restraint is applied. Second, what was the condition
before and after the restraint is imposed. Third, what is the nature of the
restraint and what is its actual and probable effect."
26. In para 37 of the said
judgment, it was held that the area restriction did not constitute
"Restrictive Trade Practice". In para 56 it was observed as under:
"The question of competition
cannot be considered in vacuo or in a doctrinaire spirit. The concept of
competition is to be understood in a commercial sense. Territorial restriction
will promote competition whereas the removal of territorial restriction would
It was further observed in para 59
"In the present case the
restriction imposed by Telco on dealers not to sell bus and chassis outside
their territories does not restrict competition for the foregoing
27. With regard to "exclusive
dealings", this court further observed in para 60 as under:
"The other term of exclusive
dealership in Clauses 6 and 14 of the agreement between Telco and the dealers
that the dealer will not sell commercial vehicles of other manufacturers, does
not amount to a restriction in competition because other manufacturers can
appoint other persons to deal in their commercial vehicles. It is also in
public interest to see that vehicles of other manufacturers are sold in the
same territory by other dealers. Therefore, there will be competition 16
between the manufacturers of different commercial vehicles and as far as
exclusive dealership of Telco commercial vehicles is concerned, it will be in
public interest and not be a restriction in competition."
28. With regard to
"territorial restriction" and "exclusive dealings", this
court held in para 61 that these conditions were not "prejudicial to
public interest" and that both these restrictions were in public interest.
29. The appellants have also
relied upon the judgment of this court in the case of Mahindra and Mahindra
Union of India & Another
[(1979) 2 SCC 529] and laid stress on paras 14 and 15 of the said judgment.
30. Clause (h) of section 38(1) of
the MRTP Act provides that it is only when the restriction directly or
indirectly restricts or discourages competition to any `material degree' in any
relevant trade or industry that such restriction would be considered as
"prejudicial to public interest". In a case where the alleged
restrictive trade practice does not have the impact 17 of restricting competition
to any `material degree' in any relevant trade or industry, such trade practice
cannot be considered as "prejudicial to public interest" and no order
of "cease and desist" can be passed under section 37 of the Act.
31. Similarly, for invoking section
38(1)(h) of the MRTP Act to show that in any event, it could not be said that
competition was affected to any "material degree" in the relevant
trade or industry, the appellants' witness Pradeep H. Hiranandani has clarified
in para 8 of the affidavit of evidence that in view of the negligible market
share of the appellants in the relevant trade, it cannot be even alleged that
the competition was affected to any "material degree".
32. The relevant portion of the
evidence of Pradeep H.
Hiranandani reads as under:
"I say and submit that there
are several manufacturers of readymade garments in India including several
small scale manufacturers..."
"in the circumstances, the
market share of the second respondent is very negligible in the relevant 18
trade in India and accordingly circumstances exist within the meaning of
section 38(1)(h) of the Act...."
33. The appellants submitted that
the Commission did not even consider the aforesaid aspect that in the present
case competition was not affected to any "material degree" and as
such it could not be held that the alleged "Restrictive Trade
Practice" was "prejudicial to public interest", keeping in view
clause (h) of section 38(1) of the MRTP Act. The gateway contemplated under
clause (h) was specifically pleaded by the appellants and was supported by
positive evidence, but the said evidence was not even considered in the
This itself vitiates the order.
Reference to section 38(1)(h) was necessary in order to arrive at the finding
relating to the practice being "prejudicial to public interest".
34. The learned senior counsel
appearing for the respondents referred to section 33(1)(b) of the MRTP Act.
Section 33 only deals with
"Agreements relating to Restrictive Trade Practices". In the present case,
there is no allegation of 19 any "Agreement" entered into between the
parties, either oral or in writing under which any practice of
"tie-up" sales was specified. As such, section 33 has no relevance to
the present case.
35. The appellants further submitted
that even in cases where section 33 may be invoked, before passing an order of
"cease and desist" under section 37, it would still be necessary to
determine whether the alleged "restrictive trade practice" is
"prejudicial to public interest" within the meaning of section 38 of
the MRTP Act. In a case where the alleged "restrictive trade
practice" does not restrict competition to any "material degree"
in the relevant trade or industry, it could not be considered as "prejudicial
to public interest" and no order under section 37 can be passed.
36. The learned senior counsel for
the respondents referred to the "preliminary investigation report"
submitted by the Director General (I&R). The preliminary investigation
report cannot be taken into consideration as it is not produced in 20 evidence.
It is only a report submitted in terms of Section 11 of the MRTP Act for
initiating the enquiry. Only those facts contained therein, which are proved on
record by evidence, can be looked into. The preliminary investigation report,
as such, is not evidence on record. As such, any reference to the contents
thereof, which have not been put in evidence and subjected to cross
examination, cannot be looked into. This is without prejudice to the contention
that there is nothing stated in the preliminary investigation report, which in
any way establishes that any competition was affected within the meaning of
section 2(o) of the Act and that competition was affected to any "material
degree" in the relevant trade or industry, as contemplated under clause
(h) of section 38(1) of the Act.
37. The appellants submitted that
the findings given by the Commission that the dealership of the complainant was
"terminated" by the appellants herein and held it to be a 21
"restrictive trade practice", was wholly uncalled for and untenable.
38. The appellants submitted that
no finding with regard to termination of dealership could be made since there
was no such charge or allegation made in the Notice of Enquiry. A reference has
been made to the case of M/s. Lakhanpal National Ltd. v. MRTP Commission and
Another [(1989) 3 SCC 251]. This court in para 9 of the said judgment observed
"The argument was rightly
repelled on behalf of the appellant on the ground that this aspect cannot be
examined in the present case in view of the limited scope of the charges as
mentioned in the Show Cause Notice quoted above."
39. The appellants contended that
since there was no allegation of "restrictive trade practice" on
account of the alleged termination of the agreement, no order in respect
thereof could be passed by the Commission. The order passed in respect of the
same is clearly illegal and without jurisdiction.
40. The appellants further
contended that, in any event, the evidence in the present case clearly
establishes that the complainant firm M/s Roop Milan had itself asked for
return of its security deposit from appellant no. 2. which was duly returned
and thereafter, there was no dealing between the parties. As such, there can be
no case of termination of dealership. The said complainant firm was mainly
dealing with the products of other manufacturers and out of its total turnover
of Rs.25 lakhs per annum, its purchases from appellant no. 2 was only to the
extent of Rs.50,000 per annum. In these circumstances, the said complainant
firm did not desire to continue to deal with the appellants' products and as
such sought refund of its security deposit, which was duly made. The relevant
extract in this behalf from the evidence of Viren Singh, partner of the
complainant firm is reproduced as under:
"It is correct that in our
letter we had asked a refund of the security deposit which was refunded to us
by the respondent no. 2 along with their aforesaid letter dated 28.9.1987. In
fact we 23 received the refund as per memo dated 28.9.1987.
It is not a letter as such and
this is Exh. AW1/R- 18."
41. The appellants submitted that,
in any event, mere termination of dealership agreement does not affect
competition within the meaning of section 2(o) of the MRTP Act and cannot be
treated as a "Restrictive Trade Practice".
Further, the termination, if any,
of a single retail dealer cannot affect competition to any "material
degree" in the relevant trade or industry, within the meaning of clause
(h) of section 38(1) of the Act.
42. The appellants submitted that
the Commission was not justified in passing any order regarding termination of
dealership. The appellants also submitted that appellant no. 1 is only a
holding company of which appellant no. 2 is a subsidiary company. There is no
transaction of sale or dealing by appellant no. 1. No manufacturing or selling
activity is carried out by appellant no. 1 and as such, no "tie- up"
of sales could be resorted to by appellant no. 1.
24 Therefore, the Commission was
not justified in passing any order against appellant no. 1. The appellants
submitted that the impugned order of the Commission ought to be set aside and
the notice of enquiry be discharged.
43. We have carefully gone through
the entire record in this case and heard the learned counsel for the parties at
From the proper analysis of the
entire evidence on record, we reach to an irresistible conclusion that no
"tie-up" of sales of trousers as a condition has been established.
Therefore, the Commission's passing any consequential order on the basis of
tie-up is wholly untenable and unsustainable in law.
44. The court would be justified
in passing the order on alleged restrictive trade practice only when it is
"prejudicial to public interest" under clause (h) of section 38(1) of
the MRTP Act. The pre-condition for passing such an order is that the
restriction as imposed directly or indirectly when restricts or discourages
competition to any "material degree" in any trade or industry, then only
it would be considered as "prejudicial to 25 public interest". The
court should not pass an order of "cease and desist" where the
alleged restrictive trade practice does not have the impact on restricting
competition to any material degree.
45. When the evidence on behalf of
the appellants clearly shows that there are several manufacturers including
small scale manufactures, the little share of the complainant/informant does
not affect the competition in the relevant trade or industry and, accordingly,
in these circumstances, to pass any order under section 38(1)(h) cannot be
46. In the instant case, the
complainant/informant had requested for refund of the security amount and,
therefore, it was refunded. It was really not a case of "termination of
dealership". There was no charge or allegation of termination of
dealership in the notice of enquiry, therefore, the Commission was not
justified in passing the order based on "termination of dealership".
Even otherwise also, the 26 termination of single dealership cannot affect
competition to any "material degree" in the relevant trade or
industry within the meaning of clause (h) of section 38(1) of the MRTP Act.
47. On consideration of the
totality of the facts and circumstances, the appeal is allowed and the impugned
order passed by the Commission is accordingly set aside. The Notice of Enquiry
is also discharged. In the facts and circumstances of the case, the parties are
directed to bear their own costs.
(Dalveer Bhandari) New Delhi;
May 15, 2008.